As online gambling booms, credit card acceptance lags

Legalized gambling is surging. Credit and debit card use
has reached an all-time high. But trying to use your cards to gamble? Odds are,
you'll have a tough time.

In an era when you can use the plastic in your wallet to pay
for just about anything, banks are staying cautious about allowing their
customers to rack up charges at online and brick-and-mortar casinos. They worry
about the liability associated with fueling gambling addiction and running
afoul of government regulations, and many of their practices are holdovers from
when "online gambling" was a synonym for "shady offshore casino."

Today, though, legalized online gambling is on the upswing.
Nevada, Delaware and New Jersey regulators allowed online casinos to open in
2013, and other states -- California,
Pennsylvania,
New York and Illinois among them -- have discussed the idea and could consider it in 2014. Some members of
Congress have even introduced bills to legalize online poker nationally.

Americans are also spending more at traditional casinos: an
estimated $37 billion in 2012, up 5 percent over the prior year and second only
to the pre-recession year of 2007.

Yet casino operators worry that the continued reluctance of
banks to process gambling transactions could inhibit the industry's potential.

"Of course it could impact the growth of this business -- there's
no doubt about it," says Tom Pohlman, executive vice president and general
manager of Golden Nugget Atlantic City.

Without credit cards, Jersey gambling stalls
The take from online tables in New Jersey,
which opened in November 2013, has been badly impacted by the lack of credit
card cooperation. In the first five weeks of Internet gambling in New Jersey,
online casinos took in just $8.4 million, far below state estimates, according
to the state's Division of Gaming Enforcement.

Pohlman and others in the industry are optimistic that as
legalized online gambling spreads, banks will re-examine their policies and
allow the transactions, which would give players the ability to easily fund
accounts at online casinos. For now, most of the alternatives to fund gaming
accounts are more cumbersome: sending in personal checks, bank transfers and
ACH withdrawals.

Since his casino began offering online gambling in November
2013, about one-third of all credit and debit card transactions have been
declined by the banks, he says. He adds he has heard that industrywide, about
70 percent of Visa transactions and 25 percent of MasterCard transactions are
declined. Although those numbers might sound high, because most customers own
multiple cards, only about 15 percent to 20 percent of customers are unable to
use cards at Golden Nugget.

Shifting legal
landscape
The growth of legal online gambling is coming about because
of a new interpretation of federal law. For years, the Justice Department held
that processing financial transactions for online betting sites violated the Wire
Act of 1961 and the
Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). Although some of
the wording is open to interpretation, the feds relied on those laws to
prosecute online poker operators.

But then, in 2011, the Justice Department reversed course, ruling
that federal law does not prohibit online gambling within states. That cleared
the way for Nevada, New Jersey and Delaware to start offering online gambling.

In each state, the online gambling is limited to people in
that state. In some cases, gamblers must fill our forms that show an address in
the state; others rely on technology that shows where players are physically
located.

But because the law, the technologies and the regulations
are still relatively new, some banks are reluctant to assume a leading role in
processing gambling transactions.

A Bank of America spokeswoman told CreditCards.com: "Credit
and debit cards can be used for in-person gaming purchases, but not currently
for Internet gaming purchases." A Wells Fargo spokeswoman said that to comply with the UIGEA, "we
prohibit the use of consumer credit cards for Internet gambling. The networks
(Visa, MasterCard and American Express) monitor the merchant category codes
and block charges that don't comply with federal regulations. We also have
controls in place as an issuer to monitor for regulatory compliance."

Merchant code blocks transactions
At least some of the issue, it seems, stems from the Merchant Category Codes that banks assign to each merchant. For instance, MasterCard has
traditionally assigned online gaming operators the code 7995, which also covers
lottery tickets, casino chips and racetrack wagers -- categories for which
banks routinely block transactions. But it also has a newer code -- 9754 -- that
can be used for cash advances for legal gambling.

The fear on the part of banks is, what happens if their cards are used to fund a wager that's in violation of the rules?

--
Chris Grove
Online Poker Report

Gambling industry officials hope that as banks and
transaction processors become more comfortable with legal online gambling, they
can iron out some of these problems.

"Now that you have legal, regulated online gaming in these
three jurisdictions, it's just working out the details between the credit card
companies and the banks and their compliance departments to make sure the
proper coding is being used," says Whitaker Askew, vice president of government
affairs with the American Gaming Association.

But others say it's more than just an issue of proper
coding. Chris Grove, editor of the industry publication Online Poker Report,
says some banks fear becoming complicit in bets that violate the regulations
on, say, daily betting-account deposit limits or the requirement that bettors
be located in the state where they are betting.

"If you're a bank, you're worried that someone uses your
card to fund a transaction they shouldn't fund or place wagers they shouldn't
place," Grove says. "The fear on the part of banks is, what happens if their
cards are used to fund a wager that's in violation of the rules?"

Still, Grove says he thinks most banks will eventually
remove their objections as online gaming becomes more established.

In New Jersey, regulators have approved digital wallet provider Skrill as an acceptable way to fund accounts at online
casinos. Skrill, a mobile payments smartphone app, can be loaded with a credit
or debit card or linked to a bank account.

Another option: prepaid cards. Golden Nugget, for instance,
has begun offering the Golden
Nugget Prepaid Card, issued by Sutton Bank and powered on the Discover
network. Customers can load the card using a credit or debit card, then use it
to play online. Should they win money, their winnings can be credited back to
the card.

The increased popularity of prepaid cards in general is also reflected in land-based casinos,
which are looking to add convenience for their customers. The Golden Nugget
card was devised by Sightline Payments, which develops cashless-gaming products,
such as prepaid and loyalty cards for casinos. Its prepaid cards last year won
an industry award for the "Most Innovative Gaming Technology Product of the
Year," with one of the judges saying, "The removal of coins from the casino
floor was a monumental step forward, and the next logical step will be to
remove the cash and tickets."

Although the technology exists to be able to swipe credit or
debit cards at, say, slot machines, gaming regulations forbid it. But using a
casino's prepaid or loyalty card? No problem.

Now, online casinos are seeing an advantage to prepaid
cards, too.

GAMBLE WITH A CREDIT CARD?
REALLY? IF YOU MUST, THEN ...

Online gambling has been slow to come to the U.S., and acceptance by credit card issuers is slower still. If you are thinking about using a credit card and gambling, consider the following.

Understand the fees. If you fund an online account with a credit card, chances are your bank will hit you with a hefty cash-advance fee plus a high interest rate.

Know your limitations. Plan how much you're willing to lose before you gamble. Don't increase your bets if you keep losing -- that's a good way to lose even more.

Don't borrow money to gamble. Don't bet what you don't have.

Set limits. Online casinos typically let you place limits on account deposits and wagering, and how much time you spend online. Some let you build in a "cooling off" period after extended losses.

Sources: Responsible Gambling Council, CreditCards.com interviews

"There is a massive financial incentive for casinos to find
ways to get money into an online account with relatively little friction," Grove
says.

Effect on gambling
addiction
While gambling-industry officials hope the banks change
their policies to smooth the growth of online casinos, critics worry about the
effect on gambling addicts. States have imposed regulations to protect gamblers from
financial ruin. For instance, in New Jersey, once contributions to a gambler's
online account reach $2,500, the casino must block bets until the gambler
acknowledges that that amount has been reached. Some online casinos also limit
the amounts players can contribute to their accounts, or at least allow players
to impose those limits before gambling.

But Les Bernal, national director of the advocacy group Stop
Predatory Gambling, says those restrictions do little to stop problem gamblers
from being preyed upon by "predatory" casinos and their enablers.

"Their business model is based on people who are addicted or
are in the process of getting addicted," he says. "If you're a bank in this
business, you're essentially profiting from blood money."

Bernal says his group is considering lawsuits against
casinos, accusing them of deceptive practices that encourage gambling
addiction.

Published: January 17, 2014

Join the discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!